HOW TO CHOOSE YOUR TRUSTEE
trustees, an overview
A trust - in it’s most basic form and definition - is a legal relationship where:
a) the legal ownership of property is separated from
b) it’s beneficial ownership.
To effectively practice this relationship a trust requires three separate parties, one of which is a trustee.
A trustee is an entity or individual which is considered the legal owner of the trust property, responsible for decision-making and possibly management and investment. The trustee’s role comes with a significant amount of responsibility. In many cases, more than a single trustee can fill this role or share certain responsibilities. It is the trustee’s duty to properly adhere to the trust document while making decisions that they objectively perceive to be in accordance with the trust document for the benefit of various beneficiaries. Sometimes this is quite clear, other times it takes skill, experience and judgement.
Aside from adhering to the trust document and upholding a fiduciary obligation to the wishes of the grantors and beneficiaries, the trustee has to possess particular competencies depending on the duties demanded of them. For instance, a trustee’s responsibilities may include safeguarding, investing or distributing assets, managing income from those assets to the beneficiaries, preparing and filing tax returns, or holding meetings addressing any administrative and management responsibilities the trust may face. In addition to these known responsibilities, the trustee may often face competing pressures and demands from various family members or other stakeholders who have a vested interest in the trust.
This can quickly become a stressful and time consuming role. The decision on who to place such a potentially large amount of responsibility with should not be taken lightly. To make the best decision, the grantor(s) of the trust should consider many variables.
what to consider
How does the grantor of the trust determine who is an appropriate candidate to designate as trustee for something so important? The first step is to understand what the trust is hoping to achieve and therefore what it will require. Here are some basic considerations:
What is the grantor’s ultimate goal for the trust?
Are there several beneficiaries? What is the relationship among them?
Is the trust a basic grantor trust in which the grantor him or her self can serve as the sole trustee?
Should the trust have several different trustee roles?
Will the trust be for the benefit of many beneficiaries?
Is the trust primarily for asset protection, tax minimization, wealth management and transfer or other reasons?
Is the trust intended to last for a short period of time or for several generations?
Will there be simple or complex dispositive provisions?
How much hand-holding is needed in the short-term versus down-the-road?
How many of the requirements can be satisfied by one individual and how many will need to be outsourced and paid for separately?
Depending on the answers to these and other similar questions, we can better understand what the trust will ask of the trustee and better understand who to consider.
who to consider As Trustee
Once we understand the complexity of the trust, a grantor and other interested parties can begin to assess the circle of trusted people in their life to see who an appropriate choice may be. At this point it is important to look beyond familiarity alone, but sincerely consider who is also competent enough to fulfill the necessary fiduciary duty. Some grantors are fortunate enough to have family or friends who are not only trusted but also competent and can fill the role of trustee. For many others, a trusted financial advisor, accountant or attorney is a strong alternative. Further, if a trust is sizeable enough, a trust company or bank may often provide corporate trustee services to assist with at least one portion of the trustee roles.
Striking a balance of family and professionals can be a prudent approach in many cases. It is wise to start with your inner circle when assessing trustees, but quickly expand to considering other qualified professionals when appropriate and in many cases, necessary. The size and duration of the trust in addition to the complexity of the provisions will likely dictate the ultimate trustee decision.
Even for sophisticated trust arrangements, many grantors want to have their family involved in some of the decision making even if they lack some of the otherwise required skills demanded from a trustee. This is where co-trustee arrangements can be beneficial. Just because a trust has many requirements that must be honored and managed, it does not mean that there cannot be a division of labor and multiple trustees to fill different roles to fulfill the trust’s purpose. While professional management may make sense with regards to trust investment, tax and legal considerations; it is often wise to have family be involved when deciding on deeply personal matters. For example, determining a particular charity a trust could benefit or a difficult choice in honoring the legacy of the trust’s now deceased grantor.
Having a diversity of trustees for more complex trusts can be wise as it permits the objectivity of an external advisor, but with the insight and connection that only family can offer. The existence of both forms of trustees can offer proper checks and balances within reason. The professional trustee can act as a voice of reason if and when disputes between family members arise, while also ensuring that proper administrative and management tasks are completed in a timely manner. Family can offer the unique connection to the trust’s wealth that only they can, providing useful context and understanding that a professional trustee may otherwise lack. For a more complicated trust, having both can often be a proper choice when the various trustee roles are delegated properly.
With all these issues involved, the decision to select an appropriate trustee can become overwhelming. Those looking to establish a trust for a variety of reasons have many factors to consider before assigning a trustee. In many cases, having a family member who has experience in finance, tax, law or business may be a sufficient choice. In other cases, the need can quickly become more complex due to the need to properly interpret the trust document and meet burdensome administrative needs. In the latter case, having some level of professional involvement is often a prudent approach. A grantor must consider not only who is capable of performing the duties that the trust will require of them, but whether they are an appropriate choice. As always, when considering the legal steps required to create a trust one should always consult a qualified attorney.
If you or your family have questions on trusts and trustees we at Hudson Oak Wealth Advisory would be happy to have a conversation with you to assess what steps may be appropriate for your unique situation. We have experience working with family trusts as a fiduciary advisor. We look to help families in many facets with their trusts, either through leveraging the proper resources in identifying appropriate trustee candidates, managing the wealth within a trust in accordance with the trust agreement, coordinating efforts with outside legal counsel or your accountant, and more.
Disclosure: (“Hudson Oak”) is a registered investment adviser in the State of New Jersey. For information pertaining to Hudson Oak’s registration status, its fees and services and/or a copy of our Form ADV disclosure statement, please contact Hudson Oak. A full description of the firm’s business operations and service offerings is contained in Part 2A of Form ADV. Please read this Part 2A carefully before you invest. This article contains content that is not suitable for everyone and is limited to the dissemination of general information pertaining to Hudson Oak’s Wealth Advisory & Management, Financial Planning and Investment services. Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this presentation will come to pass. Nothing contained herein should be interpreted as legal, tax or accounting advice nor should it be construed as personalized Wealth Advisory & Management, Financial Planning, Tax, Investing, or other advice. For legal, tax and accounting-related matters, we recommend that you seek the advice of a qualified attorney or accountant. This article is not a substitute for personalized planning from Hudson Oak. The content is current only as of the date on which this article was written. The statements and opinions expressed are subject to change without notice based on changes in the law and other conditions.